"Rents are at a record high – so why are private landlords selling up?"

[Brendan Burgess]

Rents are at a record high – so why are private landlords selling up?

Smart Money: For every two landlords selling, only one is buying

www.irishtimes.com

Good article by Cliff Taylor quoting research by Amárach

A recent survey from the RTB, completed by Amárach, shows that while there is not a flood of landlords planning to leave, there is a steady stream. Among smaller landlords with one to two properties, just over one quarter plan to sell a property within the next five years, and around 10 per cent within one year. Very few – just 6 per cent – intend to reinvest in buying more property. Rural landlords were more likely to sell than those in Dublin.

Among the reasons given were the difficulty some found in making a profit, with one in four saying their income was less than their cost. The factors quoted as negatives includded taxes, with landlords complaining that deductions for expenditure which they could make against their tax bill had tightened in recent years. Meanwhile rental income for most is exposed to tax at a marginal rate of 50 per cent plus, as the vast bulk are part-time landlords with other earnings.

More onerous regulations were also blamed by some – seen as tilting the balance too far towards tenants and restricting annual rent increases inside rental pressure zones in the cities. Meanwhile given the generally older age of landlords, some were planning to sell to fund their retirement.

 

[horusd]

I confess I know little about the rental market per se, but I did read the article yesterday and wondered whether or not we needed to attract larger private landlords - as are common in most developed rental markets like Germany and Austria - to become the norm here? I understand that many properties in places like Vienna (where I lived) were owned by pension funds and the like. This seems a more stable prospect, but probably needs to be considered in the round as part of a long-term housing strategy.

 

[ClubMan]

You mean evil, predatory, absentee landlords?

 

[horusd]

@ClubMan lol. I know, and given our history, "forrin" absentee landlords might be anathema, but I suspect there are economies of scale in larger owners such as pension funds having an input. I imagine we could, to some extent, copy and paste legal and tax legislation (at least somewhat) from our European friends to make it a runner. This would necessarily form part of a comprehensive response to problems in the housing market.

 

[NoRegretsCoyote]

I understand that many properties in places like Vienna (where I lived) were owned by pension funds and the like. This seems a more stable prospect, but probably needs to be considered in the round as part of a long-term housing strategy.

Funds are certainly going to be a big part of funding of new development (in particular apartments). The days of new multi-unit developments having multiple owners are largely gone. A friend of mine knows this space and he pointed out the bleeding obvious recently to me. These developments are FAR more valuable (in the region of 20%) when owned as a whole than when owned separately. There are obvious economies of scale from managing an entire development, but the big plus is that you can sell up or re-develop the site in 20 or 25 years. This is impossible with developments in multiple ownership. Multiple ownershp will still exist at the very high end, but the vast majority of new build apartments will have a single owner.

The best landlord I ever had was a fund. They threatened the noisy neighbours upstairs with eviction and it worked. No issues or quibbles with notice or deposit. One neighbour said he'd lived in three or four units in the same development over the years. They rewarded loyal tenants with apartments with a better aspect. Sometimes people even moved within the development as their needs changed. None of this possible when developments are in multiple ownership.

 

[Allpartied]

They are selling because the market is topping. Another property crash is inevitable, as property is totally unaffordable for average earners.
If a three bedroom house/apartment in a modest area of Dublin costs 3/4k a month to rent, then it is beyond a family earning less than 70k. Most people don't earn 70k.
While the supply side is a massive problem, there remains a limit on what renters can pay and what buyers can borrow.
The solution would be to build 200k council houses and rent them to people, like we used to.

 

[kinnjohn]

@ClubMan lol. I know, and given our history, "forrin" absentee landlords might be anathema, but I suspect there are economies of scale in larger owners such as pension funds having an input. I imagine we could, to some extent, copy and paste legal and tax legislation (at least somewhat) from our European friends to make it a runner. This would necessarily form part of a comprehensive response to problems in the housing market.

horusd if any of the information I have posted below is incorrect please post and correct it,

You say you live in Austria so let's look at Austria
If you lived in Austria and you had been working for a number of years and you lost your job you would get paid enough to pay the rent and live from your social security payments,

from 1990 to 2021 I think the average social security payroll take is around 39% in Austria,
The employer pays around 21%
Employees pay around 18%
I go walking hiking in the Alps in Austria almost every year
I was talking to an Austrian woman out walking the last time I was there she had just turned 65 and retired from Childminding in her home for over 30 years if I understood her correctly the home she was living in was rented while she was childminding,
she was now going to rent a new home the social security she paid while minding the children gave her enough of a pension to retire comfortably and rent a new home for the rest of her life,

looking at my own payslips From 1990 to 2016 when I retired payroll social security averaged around 19.%
employer around 10.5%
Employee around 9%
If I was out of work I would get the same as if I never worked a day in my life if you earn 300 euro per week you get 203euro
if you earn 1000 a week or 10000 a week you still get 203 euro social security
For rental to become the norm like in Austria and Germany Irish social security rates and payments would have to follow Germany and Austria first,
self-employed pay 4% social security in Ireland from 1990 to 2021,
self-employed pay 27% social security in Austria,

 

[odyssey06]

Funds are certainly going to be a big part of funding of new development (in particular apartments). The days of new multi-unit developments having multiple owners are largely gone. A friend of mine knows this space and he pointed out the bleeding obvious recently to me. These developments are FAR more valuable (in the region of 20%) when owned as a whole than when owned separately. There are obvious economies of scale from managing an entire development, but the big plus is that you can sell up or re-develop the site in 20 or 25 years. This is impossible with developments in multiple ownership. Multiple ownershp will still exist at the very high end, but the vast majority of new build apartments will have a single owner.

The best landlord I ever had was a fund. They threatened the noisy neighbours upstairs with eviction and it worked. No issues or quibbles with notice or deposit. One neighbour said he'd lived in three or four units in the same development over the years. They rewarded loyal tenants with apartments with a better aspect. Sometimes people even moved within the development as their needs changed. None of this possible when developments are in multiple ownership.

Not disagreeing with your main point but just noting there can be a flip side to that story down the line though which is if a single owner wants to redevelop in 20 years they have an incentive to let things run down at that point.
And perhaps what we are lacking is the possibility of a condo (?) setup of owner occupier only apartment complexes.

 

[Purple]

The solution would be to build 200k council houses and rent them to people, like we used to

When we did that, between the 30’s and 50’s, we spent very little on welfare, health and education. We were poor and, for the first 40 years after independence, got poorer. It was only when we shifted our state spending to human capital that we got richer. Going back to that model would be madness. We do need to build more public housing but we should be careful what we wish for.

 

[AlbacoreA]

People wanted Larger institutional landlords, well they got them. Their numbers are increasing
People wanted small landlords out of the market. Well they've got that as well as their numbers are decreasing.

Supply is still falling and rents still increasing.

 

[PGF2016]

They are selling because the market is topping. Another property crash is inevitable, as property is totally unaffordable for average earners.
If a three bedroom house/apartment in a modest area of Dublin costs 3/4k a month to rent, then it is beyond a family earning less than 70k. Most people don't earn 70k.
While the supply side is a massive problem, there remains a limit on what renters can pay and what buyers can borrow.
The solution would be to build 200k council houses and rent them to people, like we used to.

Why if there is a lack of supply will there be a crash? Genuine question.

 

[Gordon Gekko]

Data is not the plural of anecdote, but almost every landlord I know who has sold up was “accidental”.

i.e. it was their starter or interim home but the financial crisis left them with negative or negligible equity.

 

[kinnjohn]

Why if there is a lack of supply will there be a crash? Genuine question.

Irish people always voted with their feet,
Another good example is lots of eastern European construction workers left Ireland after losing their jobs after the last crash and went to work in the likes of Germany, there are two reasons why they will never work in Ireland again the social security they got was enough to feed themselves but nothing left over to pay rent or mortgage,
there will be lots of houses and no money to pay rent or mortgage like in 2008/2009 if the job market tanks,

 

[AlbacoreA]

I thought there would be economic crash post the lockdown. But for every business that did badly. There has been another than has done well. Some people have never been busier. Maybe it's not 50:50 but one is offsetting the worst of the other.

If people were to emigrate there is no where to go to that hasn't got the same problems.

In 2020 and 2021 we still have the population increasing. So more are coming here than leaving. Which means more demand for housing.

Add to that we have a backlog demand for housing created over the last decade.

 

[The Horseman]

Landlords are selling because the rental market is so toxic for small landlords.

The title of the post speaks volumes. If rents were covering mortgages after tax then logic would say keep the property as its paying for itself.

Both Threshold and the RTB and now even the Govt have acknowledged the fact. Unless the Govt rebalance the situation then expect the situation to continue.

 

[kinnjohn]

look how much the state was allowed to borrow because of the lockdown, do you really think we would be allowed to borrow at close to zero in a crash,
if there is another crash it will be like 2008/9 again, possibly a lot worse if self-inflected again,
Back to this thread
In a downturn, new/old landlords with mortgages are exposed to falling asset prices mortgage repayments, and possibly tenants who need to feed themselves first before thinking about paying rent if affected by a downturn,

most private landlords selling up at present were never in it to make a profit from rent returns, Most were expecting the property to increase in value and are getting out now while they are ahead,

 

[cremeegg]

When we did that, between the 30’s and 50’s, we spent very little on welfare, health and education. We were poor and, for the first 40 years after independence, got poorer. It was only when we shifted our state spending to human capital that we got richer. Going back to that model would be madness. We do need to build more public housing but we should be careful what we wish for.

As usual Purple has an interesting and original (afaik at least) point to contribute.

 

[cremeegg]

Irish people always voted with their feet,

In the past the UK, US and other countries were much richer than Ireland, so even low status jobs there could be attractive to Irish emigrants, today Ireland is wealthier than most other countries the emigration outlet is no longer very attractive.

 

[cremeegg]

They are selling because the market is topping. Another property crash is inevitable, as property is totally unaffordable for average earners.
If a three bedroom house/apartment in a modest area of Dublin costs 3/4k a month to rent, then it is beyond a family earning less than 70k. Most people don't earn 70k.
While the supply side is a massive problem, there remains a limit on what renters can pay and what buyers can borrow.
The solution would be to build 200k council houses and rent them to people, like we used to.

Property in Ireland is cheap to buy, by comparison with building costs and by comparison with international price/income ratios.

Most couples working full time earn well over €70k per annum.

 

[kinnjohn]

In the past the UK, US and other countries were much richer than Ireland, so even low status jobs there could be attractive to Irish emigrants, today Ireland is wealthier than most other countries the emigration outlet is no longer very attractive.

Ireland is full of high paid jobs at present, take away the high paid job for a year lots have no wealth worth talking about,
lots could emigrate and get a good job outside of Ireland if we mess up again,

I bought a few houses in the downturn and have them rented out, I would not buy at present going off present rent and house prices,